Property Management - Self Managing

The concept of ‘self managing’ a commercial property may make sense in certain situations.  If you have the ability and resources to provide the necessary services for the property, there is no reason you shouldn’t consider managing the property on your own - and pay yourself to do so.

What might this look like and are there issues that need to be addressed?  As with professional management, it needs to include the first 3 elements – Asset Management (AM), Financial Management (FM), and Physical Maintenance.  Since you are the owner,  the AM/FM component becomes more of an internal exercise, as you are basically accounting (reporting) to yourself.  Tenant communication is probably the biggest key, and you should attempt to provide it a level which is comparable to professional management. That doesn’t mean it needs to be overly complicated and detailed – but rather efficient, clear, and easily understandable. On the leasing function, you may opt to involve a real estate brokerage to handle new leasing placements.  In this scenario, you might retain the responsibility of negotiating any new deals, lease preparation, and completing any work required to deliver the space.

Bear in mind, you are wearing a lot of hats in self-managing. You need to do a good self assessment to ensure you are up for the task.  In preparation, consult with your professional advisors (lawyer, accountant, & of course r/e broker) to make sure you are able to deliver the service needed on all counts.

Should you pay yourself – ABSOLUTELY!  There is no such thing as 'Free Management’ and it should be costed at levels consistent with whatever is typical in your market. If done properly, it is often a  ’win-win’ for owners and tenants, given the vested interest both have in the property.

Again, seek out experienced commercial realtors within your  market to discuss prospects on ‘self-managing’ your property. 

Property Management - Who Pays? Where is the cost shown?

A couple more good questions – and the simple answer is, it depends on the type of lease agreement(s) in place on the property.  Are we dealing with net lease agreements, whereby the tenant pays all operating costs associated with the property (TMI). Or are they gross or semi-gross lease agreements, where the tenant pays a set/specified amount irrespective of the operating costs associated with the property. If you are not sure, take a close look at the lease agreement(s), to determine the exact type of lease that is in place.  

In the case of a true net lease agreement, the tenant typically pays the cost of the property management through an additional rent charge – commonly known as TMI (taxes, management/maintenance, insurance). Management is clearly reflected in this ‘acronym’, and the associated cost forms part of the additional rent.

In the case of a gross lease agreement, the landlord typically pays the cost of the property management out of the total gross rental(s) received. It may or may not be adequately covered for in the gross revenue figures – but it must be accounted for, when you determine the true net income figures.

You may encounter a variety of hybrid leases within your market – ie. customized in between a true net lease and a true gross lease – but in the end, you need to determine how the lease(s) provides for management expense and who is ultimately paying. 

A few final caveats in this area –

·        Ensure statements provided are consistent the leases in place

·        Net Lease Tenants can challenge non-competitive management costs

·        Lending Institutions will apply their own management cost factor (which may be inconsistent with costs provided with the property)   

As always seek out the advice of experienced commercial realtors within your

market, as you analyze the relevant management costs associated with the

property investments you are considering.      

Property Management - What Sort of Costs/Fees?

It’s a great question – but one which is not simple to answer. In reality, there is no universal management fee structure. Just as commercial properties vary from location to location and market to market, so to do the related costs to manage these properties.

Factors to consider should include:

·        Size of the property and total # of tenants

·        Types of tenants – commercial/medical/retail/office

·        Projected maintenance requirements – based on prior years

·        Projected capital improvements pending (ie. new façade/roof)

·        Type of Financial Management required (ie. proformas/budgets)

·        Vacancy Status (management needs differ w/ high/low vacancy)

·        New Lease Involvement w/ Placements & Marketing

·        Historical Cost to manage the property (minimum 3 years)

Your best fee comparisons are done locally in your own market, making best efforts to find similar type commercial properties. Interviewing a minimum of 3 management companies is a good strategy, ensuring that you establish the same criteria for each proponent  -- comparisons need to be “apples to apples”.

In our local market of Windsor-Essex (Canada), if I had to provide a range for management fees, it would likely fall in the area of 3-5% (commercial properties only, not multifamily) of the total gross revenue.  Again, services offered may differ from company to company and you need to ensure you are making valid comparisons. As well, this would not include any ‘new leasing’ related services, which would be the responsibility of a related real estate brokerage.

As always seek out the advice of experienced commercial realtors within your market, as you look to establish a good management plan.     

Property Management – Do I Need It & What Does It Look Like?

If you acquire a commercial property which requires a certain level of management, what should you expect or look for? It will very much depend on what you specifically require and in most cases, you should be able to find providers who can tailor services to meet your needs.

Typical services would include the following:

• Asset Management – on going communication with the owner, preparation of proformas/budgets, tenant relations coordinator
• Financial Management – collection of rents, manage receivables, accounts payable, operating cost billings, monthly statements, procure bids for insurance
• Physical Maintenance – property inspections, perform regular maintenance, repairs & improvements, 24/7 avail., supervise hired contractors, manage projects
• Leasing Placements – coordinate all new leasing activity (in conjunction with r/e brokerage), screening of prospective tenants/credit investigations, tenant set-up

Most professional management services will tailor a package based on the services you require – in short, a menu driven approach where you select what you need. A lot will depend on where the property is located (relative to where you reside), and what sort of time/resources you can devote to any of the above management categories.

Just a final comment on well managed properties. They usually are occupied by content (dare I say – happy) tenants, which generally makes for a more successful investment property.  Keep this very much in mind, as you structure your management plan.

As always, seek out experienced commercial realtors within your market to assist and guide you on the best management solutions available.